As demonstrated repeatedly in recent months, cargo insurance is a necessity when transporting goods by air, land, sea, or...
Best Practices: Paying Customs Duties Directly and Electronically – May 26, 2021
The sharp increase in freight rates and imposition of trade remedy duties over the past several years has meant additional out-of-pocket costs for shippers. Previously, TOC’s policy was based on a financial review, after which we would extend credit for things like international freight and Customs duties. However, the conditions of the day have led us to encourage our importer clients to help lessen both our financial risk and better control their cash flow by paying Customs directly.
It’s easy, and we’re happy to both explain how it happens and help get your company set up to take advantage of these programs and their benefits.
Customs regulations require that duties be deposited within ten working days from release, excluding federal holidays. Absent physically attaching a check to the entry summary, the agency allows Customs brokers to pay duties on a daily statement that resembles a credit card statement. Importers are able to pay directly via this method, too, but we can also recommend one that is even better for cash flow.
The agency offers a program called Periodic Monthly Statement, or PMS. Periodic Monthly Statement really does operate like a credit card, where a month’s worth of entries are paid in the following business month. This means that entries that are released can have as much as 45 days of float if they occur early in the month because they can be paid as late as the 15th working day of the following month.
The Periodic Monthly Statement program is open to all importers. If your company already has an ACH account where we have been paying duty directly, we are able to work with you and CBP to set you up for this even better program.
The advantages of utilizing PMS are amplified when clearance activities are centralized with a single customs broker. TOC can better help importers manage their duty settlement process and offer greater levels of entry compliance across HTS numbers, trade remedy programs, and management of bilateral or regional free trade agreements like USMCA, where valuation is more complex based on eligible and non-eligible inputs.
For more information, read this document on CBP’s website about PMS and ask your TOC account representative to help get your company set up to pay Customs directly.
ONE Apus and Insurance – May 11, 2021
After more than four months, the ONE Apus finally arrived and departed the Port of Long Beach. Caught in a storm on November 30, 2020, approximately 1600 nautical miles northwest of Hawaii, the ship lost more than 1800 containers overboard and diverted to Kobe, Japan, for evaluation and assessment. The vessel reached Kobe on December 8th, kicking off insurance investigations, repairs and the general cleanup and the maintenance that naturally comes after not just containers being swept overboard but the collapse of several stacks on deck. In a banner year for cargo mishaps overseas, the ONE Apus stands alone atop the leaderboard with other losses far behind.
In a typical year, only 1,300 containers are lost on the sea among the 5,000 ships traveling with cargo, so with the wild number of issues in 2020, the idea of cargo insurance is timely and necessary. While General Average wasn’t declared in the ONE Apus situation, we’re all acutely aware of the term now after the Ever Given Suez spectacle early this year. In that case, the ship was arrested and impounded pending a $600 million dollar insurance claim, down from the initial $916 million they sought in the days after she was freed.
These instances are rare huge examples of the things that can go wrong, but protecting your cargo is critical even when the seas are smooth. Protecting your cargo from accidents and Acts of God means more than just being ready for a once in a lifetime calamity at sea. Cargo insurance is a highly specialized policy that covers cargo owners from a named origin to a named destination by agencies who understand the intricacies of maritime responsibility in an occurrence.
Cargo insurance is also a necessity because carriers impose limitations of liability. In the case of ocean freight, they cap their risk at $500 per declared package. Depending upon both the cargo and the number of declared pieces, a shipper could be left woefully undercompensated in a claim.
TOC Logistics can offer importers and exporters cost-effective solutions for cargo across modalities that ensure when limits of liability imposed by the conveyance owners are insufficient to cover a loss, cargo insurance can make an insured party whole.
Because cargo varies wildly from one shipper to another, working with a professional who understands the needs of cargo owners means having a partner to work with the requirements specific to the individual commodities, values, destinations and carriers on a voyage. Being caught unprotected can result in huge financial losses beyond the cost of the cargo you’re shipping; a General Average declaration requires all parties to bear responsibility for the lost cargo, not the carrier, and not just for the shippers particular cargo on board.
If your container of unsharpened pencils is on a ship that loses a dozen containers worth of diamonds, your portion of responsibility will be far greater than just the value of your cargo. Adequate insurance coverage underwritten by a reputable company keeps that nightmare from awakening our clients at night. Take the time today to reach out to your TOC Logistics account manager to learn more about adding cargo insurance to your shipments, even after they are already in transit. We want to protect your cargo; let us show you how to get started.
Suez Fallout and Some Key Shipping Terms You Should Know – April 16, 2021
Although the memeing of the Ever Given has subsided and any day now we should get an incident report detailing what caused the six-day blockage, shippers and ports around the world are coming to grips with bunches of arriving vessels, equipment feast, and famine. This is just another incident in a fourteen-month string of incidents that will continue to maintain record-high prices for the foreseeable future.
We talked about the near-term practical implications for what happened with the Ever Given and what it meant both for shippers with cargo on board the vessel and for the wider shipping market.
Since a calamity can also be a time of great opportunity, we at TOC decided this would be the optimal time to educate our customers on three ocean shipping terms which we use, that you probably hear frequently and need to know in greater detail. It will be useful for explaining to your managers, owners, and customers why cargo is delayed and equipment in short supply for at least the next several months.
Whether you’re a shipper with cargo on board the Ever Given or had cargo on a vessel that jettisoned or lost containers at sea in an accident or foul weather, one thing is certain: it will never be the vessel owner’s fault, and they won’t want to pay under any circumstances.
The Egyptian government has impounded the Ever Given and wants $900 million to let it go. They’re calculating lost revenue from the Canal’s closure in their figures. The operation to get the vessel free cost only $2 million.
“If you’d not given it to us, we wouldn’t have had the problem in the first place,” is an extremely casual and technically not incorrect reading of admiralty laws or the terms and conditions on the back of an ocean carrier’s bill of lading.
Once a vessel owner declares general average, every shipper on the boat contributes to making the vessel owner and cargo owners whole. The Ever Given’s owners have declared General Average.
To give you an idea of the cost to shippers on board the vessel in a General Average claim, take these two paragraphs from the story we linked above:
General Average was declared following the 2018 fire on board the Maersk Honam. After declaring GA, the adjustor fixed the salvage security at 42.5% of cargo value and 11.5% as a GA deposit – this meant a shipper with a cargo worth $100,000 needed to pay a combined deposit of $54,000 to get its cargo released.
This leaves shippers with uninsured cargo highly vulnerable to losing it, as the owner can hold the goods under lien until the deposit is paid. Shippers with insured goods will have those deposits covered by their insurers.
Have we asked you lately – is your cargo insured or would you like a quote?
The Ever Given was just one of a number of ships operating Evergreen’s China-Europe-Mediterranean Service, or string.
Ocean carriers operate most services on a fixed day-of-the-week schedule for port calls around the world. Because these services may be a “pendulum” service where the ships go out and back or a “round-the-world” service when they keep traveling and making calls, circumnavigating the globe from east to west or vice versa, it may be months before the same vessel that called in one port is back again.
To maintain the schedule integrity of these strings it takes multiple vessels. Take a look at the schedule from Hapag Lloyd’s AT2 service, calling Southampton, Antwerp, and Hamburg in Europe and crossing the Atlantic to call Montreal.
So, for Hapag Lloyd to operate the AT2 string, they require four vessels: the Montreal Express, a vessel to be named, the OOCL Montreal, and the Toronto Express before the Montreal Express returns to Southampton four weeks to the day after last calling.
The AT2 example is great when we’re looking at shipments where the container is loaded on board a vessel at origin and is not discharged until the final port of discharge. But what happens when that container must connect with another vessel in another port to get to the final destination?
Not unlike airlines that run very tight operations a hub airport that leaves you running for your plane with minutes or seconds to spare if something happens to your inbound flight or waiting with hours to spare for your delayed or canceled outbound flight, it’s easy to see how when a vessel nearly as long as the Empire State Building is tall is held up that it can really gum up the works.
This is no different in ocean shipping, where transshipment ports like Freeport, Hong Kong, or Singapore take vessels from feeder ships (smaller and carrying fewer containers from a non-mainline port) and meet up with the larger ships moving between continents.
The delays imposed by the Suez blockage, as well as the blanked sailings in the early stages of the pandemic caused cargo to miss connections or overflow terminals getting in to and out of transshipment ports.
The implication of missed transshipments is the same as missed flights as a passenger. If you miss that one flight to that one destination that day – or in the case of some ocean vessels that week – the implications can be disastrous.
That’s a lot of stuff that can go haywire.
The number of things required to actually keep cargo in motion are not unlike any successful theatre production or scoring drive requiring rehearsals and rote memorization of choreography by the players or actors to succeed.
To the audience, it is an artfully executed performance or tallying of points.
For the participants, it is an intricate exercise in trust, planning, interdependence, and repetition.
Given the inability of the actors and figures to execute on their own, TOC is doing our best to alternately plan puppeteers or Force-choking Jedi Masters in order to drive as many successful outcomes as we can manage.
All we ask of our customers is a constant flow of bi-directional communication that ensures we are taking the right steps that you’re asking us to ensure the performers take on your behalf.
It’s not easy. It never was easy – it’s just inherently and more necessarily complex now than it was before. But working with TOC is a good first step to getting out the other side of this…together.
Suez Canal Disruptions Felt Throughout the Industry – April 5, 2021
The Ever Given is dislodged and the Canal Authority is working to clear the backlog of ships on either side, but the fallout from the previous week has only just begun reverberating through the logistics industry. What looks to many like a problem on another lane, in another country, for another carrier is actually a significant disrupter to the transportation industry worldwide, affecting shippers everywhere
Imagine you’ve made dinner reservations at the hottest new restaurant in town. You have an eight o’clock reservation and arrive fifteen minutes early to have a nice drink at the bar and do some people watching while your party arrives. Instead of walking into an efficient seating process, everyone with a reservation from six until ten has shown up at eight, waiting for service. It’s going to be a mess, and that mess is plainly visible just over the horizon for shippers. People will be shouting, dates will be hangry, servers will be frantic, and everyone will wonder how it went wrong.
TOC is here to explain how the next few weeks, like that night at the restaurant, will play out.
In the ocean cargo market, the hiccup in the Suez will radiate outward as vessels struggle to reach ports in a timely manner, because the line of waiting ships is out the door and around the corner. Some carriers and vessels gave up and opted for the 3,800 mile, 12-day transit around the Horn of Africa. If those ships had a port call scheduled for today, they won’t call for another 13 days, leading to massive delays, likely demurrage and detention for containers at the port waiting for these vessels, and a lack of empty containers being unloaded and turned with new cargo.
Just because the Ever Given wasn’t calling your local port doesn’t mean there aren’t a number of vessels in that line who are supposed to be showing up soon and won’t be. Because shipping is a finely tuned dance on a carefully crafted schedule, these issues compound as they cascade down the line of imports and exports, equipment, and port operations.
Unfortunately, it’s not just the ocean cargo that’s at risk for disruption in the domino fall coming. Already-reduced air freight belly space has been filled with PPE, vaccines, the already-present load of consumer goods, and a crush of unanticipated JIT cargo that has been mode shifted because of port and rail congestion.
Air cargo will surge as people divert from ocean shipping to ensure they’re on schedule. With lean inventory still reeling from a difficult 2021, more parts will need to be shipped by air to meet the inventory needs of manufacturers whose assembly processes run with little on-hand inventory. The fire at the chip factory in Japan, as well as overall semiconductor shortages, are starting to weigh on truck and automobile manufacturers.
At TOC, we reiterate that communication cannot solve every problem or move every shipment, but working together, we can prioritize the most urgent of cargo, identify cargo in transit that has increased in importance and attempt to transload or divert when it reaches the United States and pre-book expedited trucking or domestic air freight to make up time upon arrival. Our account managers prioritize our professional and personal relationships with our customers. Make sure to remain in close contact with your TOC AM in the upcoming weeks for updates on the impacts of the Ever Given‘s Suez closure.
Estimates Range from Days to Weeks to Re-Open Suez Canal – March 26, 2021
Global supply chains already struggling under the weight of port congestion, exponential rate increases and equipment shortages suffered another shock early this week when on Tuesday the 20,000 TEU Ultra-Large Container Vessel (ULCV) Ever Given blocked a single-lane portion of the Suez Canal bringing vessel traffic to a standstill and holding up an estimated $9.7 billion in goods per day.
The Suez Canal, connecting the Mediterranean and Red Seas, is the most direct east / west passage connecting Europe to the Indian subcontinent and Asia. 12% of the world’s global trade by volume passes through the Suez annually including containerships, oil, LNG, bulk carriers and other commercial and passenger traffic. Daily global container volume is a full thirty percent.
En route from China to Rotterdam, the Ever Given had begun traveling northbound and was approximately 4 miles from the southern entry point when it became grounded. Investigators have not yet determined a cause, but initial reports point to high winds blowing the vessel off course.
The Canal Authority is working with local and international experts to loosen the ship. Attempts have been made to dislodge the vessel throughout the week, including hopes that tugs could move her during a high tide on Thursday. That proved unsuccessful, and professional salvors are onsite evaluating what options are available. If they cannot free her in her current condition then it is likely that weight will have to be removed from the 224,000 ton vessel to float her higher in the water. This would involve removing containers, ballast water and fuel oil, further complicating and delaying attempts to reopen the shipping lane.
For commercial ships trapped on either side of the passage, calculations are being made as to whether or not to wait out the work or commit to navigating south around the Cape of Good Hope, adding 3,800 miles and up to 12 days additional transit time and for ships like oil tankers, an extra $300,000 in fuel costs.
Maersk and Hapag Lloyd are considering the African reroute option, while MSC and CMA-CGM have said at this time they are not contemplating diversions but will remain in contact with their customers.
The carryover effect for US trade is threefold.
- These late arrivals and departures are going to impact ports like Hamburg who have had to restrict container pickups and deliveries to narrow windows of time. The delays caused by this will mean more containers kept offsite, possibly incurring demurrage or detention costs until they can be returned on a schedule demanded by the lines and terminals.
- The delay of import deliveries by not just the Ever Given but other ships trapped behind her means another hiccup in the availability of boxes to load for exports to markets like the United States.
- Finally, after having to accept hundreds of blanked sailings and schedule hiccups throughout 2020, shippers are likely to be the victims of additional delays and in the worst cases, unscheduled blanked sailings as lines skip port calls to get vessels in pendulum and fixed-day services back on track.
We understand that this is one more unforeseen delay that further wrinkles supply chains, especially immediately prior to the four day European Easter holiday weekend next week. It is our commitment to continue to monitor efforts to reopen the Suez, including what it means for global containership schedules and will advise our customers accordingly.
Trucking Capacity Update – March 22, 2021
The interconnected nature of supply chains—hence the term including the word ‘chain’ overtly implying linkage—means that breaking one link has consequences for the integrity of the entire chain. Beginning with the problems created by container backlogs, shortages and port congestion, importers and exporters are looking for any means possible to expedite the overland component, and they’re turning primarily to trucks.
The most recent January figures for the Hackett Associates / NRF Global Port Tracker report tell the tale—reports for the major retail ports they track were down slightly from December but were still up 13% year on year. Los Angeles for February reported processing 799,315 Twenty-Foot Equivalent Units (TEUs) in February, a 47% jump compared to February 2020. It was the seventh consecutive month of year-over-year increases and the strongest February in the Port’s 114-year history.
For inland haulage, the exponential influx of non-traditional cargo due to the surrounding delays means that the normal ebb-and-flow we see surrounding seasonal shipping patterns for summer import peaks or early season produce moving eastwards from California are upended with consumer goods traditionally moved intermodally.
Add to the challenges last month’s polar vortex, which threw Texas into chaos as demand skyrocketed and weather conditions prevented trucks from getting on—or in some cases off—the road. Volumes increased by 15%, mirroring the typical transportation conditions around the holiday season. Availability, however, was reduced by 25% from the weather issues impacting driver safety. Entire sections of some fleets were stalled for a week because of the damage done in the aftermath.
TOC relies on two kinds of trucking capacity for our customers. First, power and equipment to move cargo through the country or cross-border between any combination of ports, suppliers, factories, assemblers, warehouses or ultimate consignees. The second is trucking by us and our forwarding partners for in-bond cargo that moves from a US port of arrival to inland or border locations for clearance or export without the need to make entry or pay duty.
Ultimately, what does this mean for now?
It means that the spike in pricing and capacity crunch we are seeing likely won’t abate until there is some relief from the backlogs at major ports of entry like Southern California. In what could be seen as a minor bit of good news, the number of vessels waiting to berth was halved this week from 40 to just over 20.
Our ongoing goal at TOC, which predates and continues through pandemic-related supply chain operations, is to continue to work diligently through our network of vendor partners to source the necessary road transportation our customers need. Much like the sudden and unexpected swings we have seen in ocean or intermodal costs, we are doing everything in our control to flatten these spikes through long-established relationships, but we continue to underscore the importance of flexibility and understanding as we try to meet the twin goals of cost containment and continuity of service across every mode of transportation utilized by our customers.
Oceanic Challenges Part 2: The Transpacific – February 8, 2021
Transpacific conditions are worsening for carriers, shippers, and longshoremen.
Last week, we cautioned our customers about the challenges on the transatlantic trade but neglected to include the midweek surprise of a three-day strike in Hamburg by port workers at HHLA terminal. You can read the announcement here, but here are the details: “The strike affected only the HHLA terminals who cover 75%–80% capacity of the port of Hamburg, but all vessels with service to USA sail from CTA. So the US trade lane will be heavy affected.”
With that bit of updating out of the way, we turn our attention to conditions on the transpacific which are worsening by the week. In this update, we look to give you updates on three issues that are of greatest concern to shippers right now: COVID positivity at the ports, increasing involuntarily blanked sailings in advance of Lunar New Year, and the disappearance of premium services and early signs of what the 2021 contracting season will look like.
COVID Impact on Longshore Labor
Speaking to the Propeller Club of Northern California last Tuesday, PMA President Jim McKenna shared that there have been 13 deaths of longshoremen from COVID in the ports of Los Angeles and Long Beach with another 855 cases, half of which have occurred since the beginning of January. Further up the coast in Northern California, there have been 74 cases and 2 deaths. In Seattle and Tacoma, there have been 110 cases with no deaths.
A chorus of voices is growing louder to get longshoremen vaccinated as soon as possible, including from two FMC Commissioners to President Biden.
Longshoremen perform a number of highly skilled functions, including operating the overhead gantry cranes loading and unloading vessels and the straddle and yard cranes responsible for moving containers on and off chassis and railroad flatcars. The steps taken by the ports to minimize exposure have also reduced capacity, throughput and productivity at a time when there are a record number of vessels at anchor offshore awaiting a berth. This parking lot of ships, which can be monitored on Marine Traffic, is now having the cascading effect of blanked sailings in Asia.
Blanked Sailings Mean Backed-Up Factories
From Splash 24/7 on February 3rd: “Alphaliner has identified 41 containerships at or near to the San Pedro anchorage awaiting a berth at the beginning of this week, equivalent to a total capacity of 336,500 teu. Including the 27 ships already at berth on Monday, the total container fleet currently in the Los Angeles/Long Beach area represents a capacity of no less than 579,100 teu.”
Unfortunately, the longer these vessels remain in port delayed, the more likely they will create a hole in the multi-ship rotation that is required by carriers and alliances to maintain fixed-day weekly sailings. Because of this, carriers like Hapag Lloyd are taking the steps of actively blanking sailings and sliding schedules by a week to attempt to get vessels back on time.
Despite Service Failures, Carriers Feel in the Driver’s Seat in 2021
Schedule reliability reached the lowest recorded levels in December, with just 44.6% of vessels arriving on time according to SeaIntelligence Consulting.
Carriers who looked to a buyer’s market to provide guaranteed space and transit times have seen the ability to berth and unload evaporate. CMA-CGM, for instance, has cancelled their Southern California SEA-X premium service from China, seeking instead to launch new routes to Oakland and Seattle.
With the annual TPM Conference coming up in a little over a month, TOC representatives traditionally mingle in Long Beach to hear in person from carriers and major beneficial cargo owners and shippers what to expect and take the temperature of the room for annual contract negotiations.
This year, with rates overheating, contracts are going to be negotiated in the middle of a spot-rate boom that prioritizes space over price.
Yet despite all this, the cargo isn’t abating. The Journal of Commerce (paywall) is reporting that more factories than usual have responded they will remain open during the Lunar New Year holiday, as much because people are being discouraged from traveling home as to catch up with orders.
What Can be Done?
There is no magic bullet, no magic wand, and no short-term solution. Our team is made up of very seasoned, experienced logistics professionals. Comparisons have rightly been made to this being among the worst—if not the worst—congestion faced by the industry. But we’re doing what we can.
We are working to find solutions to minimize delays where we cannot eliminate them. We cannot wish low rates back to the marketplace, but we are leveraging our strong, multi-year partnerships to secure equipment and space to keep supply chains moving.
We are asking our customers to understand that this requires budget flexibility. We have access to multiple carriers—nearly all of whom are at different tiers of pricing. Imposing irrational ceilings or conditions on moving cargo will limit choices and not lead to positive outcomes.
Communication will be key. The word “partnership” gets thrown around casually nowadays, but in these challenging times, it is only by working closely and collaboratively that we’ll be able to help our customers succeed.
Oceanic Challenges Part 1: The Transatlantic – February 1, 2021
Transatlantic and transpacific routes are seeing unique and significant challenges. TOC is focused on working with our customers and carriers to provide the best possible service.
Whether coming to North America from Europe on the North Atlantic or from Asia on the Pacific, carriers and conditions on both lanes are raising unique challenges to maintaining fluid and operating supply chains.
Our goal with this Market Advisory is to provide detailed information on what is causing challenges on the transatlantic. A second advisory this week will speak in greater detail to what is happening on the transpacific.
We are facing three challenges on the transatlantic trade lane: UK/European haulage, terminal congestion and blanked sailings.
When the United Kingdom left the European Union on January 1st, the ease with which truckers moved back and forth ground to halt. This was due to requirements for declarations going into and out of both economies.
The European Union was the destination for 43% of the UK’s exports in 2019. Shipments departing for the EU now require transit paperwork to be issued by Her Majesty’s Customs and Excise. There is both a shortage of customs officers to process these documents, as well as additional financial guarantees that many agents have already fully obligated and are working with the government to increase.
With great thanks to Johannes Barthels of ProTrans Global for keeping us abreast of conditions in Germany, the congestion and delays in Germany and other European ports are leading to congestion so severe that terminals are unable to operate.
Three of the four leading terminal operators at Hamburg port (CTA, CTT and CTB) now have a rule in place that export containers cannot be delivered more than 48 hours before a vessel is scheduled to arrive. This causes backups for loading and demurrage for holding equipment because of the delayed and ever-changing schedules for vessels based on the situation at prior ports of call.
Together, these three terminal operators account for 80% of the capacity at the port of Hamburg.
We have talked before about blanked sailings, the bane of the exporter (and importer). A blanked sailing is when a carrier is expected to operate a service as part of their regular, fixed-day-of-the-week operations and will not have a ship that week. Until the pandemic, blank sailings were the voluntary choice of the carrier for the purpose of aligning bookings with capacity to preserve rate levels or to put a vessel in drydock for repairs.
Today, blanked sailings are occurring because vessels are so delayed, or containers so out of position, that only by making the determination that a vessel will not meet an intended call can they both attempt to get containers where they need to be, such as empties back to Asia, and get the vessels back on their intended schedules.
The intended and unintended consequences are backups of cargo in shipper and forwarder warehouses, containers and wheels waiting to be loaded and no way to easily change a booking and send the container to another port of export to take advantage of another potential sailing.
What can be done?
TOC Logistics, ProTrans Global and the rest of our network are focused on communication and carrier relationships to minimize what is an unquestionably impactful situation. We continue to encourage shippers to book early and provide accurate forecasting and allocations. For cargo above and beyond allocated amounts, we can work to negotiate ad-hoc rates that secure one of the few available spots on these ships, or secure an estimate from an airline for one of the multiple passenger freighters (or “phreighters”) in operation between Europe and US gateways.
For the most up-to-date information or to discuss options for cargo which has been directly impacted by a blanked sailing or other delay, contact your TOC Account Manager today.
Don’t Let Transpacific News Crowd Out Equal Transatlantic Challenges – January 13, 2021
We have written multiple times about the ongoing problems with the eastbound transpacific but want to be sure shippers are aware that equal congestion, rate and capacity issues exist on the transatlantic.
U.S. exporters are unable to get containers, because carriers are sending them back to Asia empty. The attention focused on backlogs in Southern California port congestion and general supply chain congestion misses what has been happening in Europe and on the North Atlantic. As TOC continues to work to ensure adequate space and fair rates for our customers on this lane, we wanted to focus on three issues that are working against the trade and in favor of carriers.
Triple digit carrier surcharges
In our recent market advisory, we addressed the issue at Hamburg port over the Christmas holidays. This issue led them to stop accepting export containers, which caused vessels to cut and run, leaving hundreds of containers behind. The cascading issues of too many containers in all the wrong places have led carriers like Hapag Lloyd to introduce an Equipment Imbalance Surcharge (EIS) of $200/40′ container.
The supply and demand imbalance is also giving European carriers the space to try to implement a feature of TPEB contracts, Peak Season Surcharges. These additional per-container costs traditionally appear in contracts between June and the end of November and are meant to capitalize on periods of high demand. Until the pandemic, the circadian rhythm of shipping was such that the majority of cargo included fall, back-to-school, and holiday consumer goods moving to the U.S. from Asia. The slack season would be December and January, a short burst of outdoor spring merchandise preceding Lunar New Year, and then a gradual resumption by the start of the third quarter.
CMA-CGM, one of the largest carriers in the world, announced their intent to impose a $400 Peak Season Surcharge on the transatlantic, which is heretofore unheard of. Is this opportunism, or does it reflect a change in things from carriers whose routes and reach are increasingly global? Only time will tell as we move through 2021.
Large spot market variances
TOC, like most NVOCCs, hold time-volume contracts—we commit to pay ‘x’ per container on behalf of our clients in exchange for ‘y’ number of slots (or container bookings) per week. When we work with our clients on bids and forecasting, we stress the importance of accurate figures because in non-pandemic years, this ensures we have enough space throughout the year.
Increasingly, carriers are doing two things. They are accepting and prioritizing spot rate cargo at significantly higher rates than the contract rates they agreed to while simultaneously demanding contract holders pay an additional premium or surcharge to protect their slots. This protection doesn’t even come with a guarantee of equipment or a slot on the vessel. This can be seen in what is happening in ports throughout Europe to relocate empty containers and get vessels back on schedule.
ProTrans Global, the European division of TOC located in Germany, is a member of CLECAT, the European forwarders association, who is pushing back on these additional costs and demanding the Competition Directorate of the European Commission get involved. This joint letter from CLECAT and the European Shippers Council lays out in stark terms what is happening.
Carriers setting the stage for higher rates during upcoming contract period
TOC’s position as a market leader on the North Atlantic means that we have the ability to push back on many of these proposed surcharges and the retail-announcement level increases. Our teams in the United States and Germany work together, assembling market intelligence on both sides that protects our clients and prevents carriers from making claims that we can easily confirm or debunk.
We are focused on delivering three things for clients in the coming weeks and months:
● Protecting space allocations
● Mitigating surcharges and increases
● Drawing on years of positive, cooperative relations to blunt carriers’ opportunistic overreach in higher rates in our next contract
As always, work with your TOC account manager who is your primary partner for allocation, rate and service questions. As we approach a year of pandemic-driven business adaptations, we, along with the world, are cautiously optimistic that vaccinations will pave the way to a return to more accelerated supply chains where people can once again work together in greater proximity without fear of infection and volumes and service are driven solely by economic factors and less by global health constraints.
Hamburg, Germany closes terminals, turns away thousands of export containers – December 23, 2020
NOTE: As we were drafting this message on Monday and Tuesday, the terminals had instituted controls to manage the flow of containers.
Now, as of today, Wednesday, December 23rd, bad weather and heavy fog caused Container Terminal Altenwerder (CTA) to stop loading vessels for 8-10 hours. Because of this delay and congestion at the terminal, they reached the unfortunate decision to stop receiving export containers until further notice, regardless of closing date. This created heavy congestion with trucks waiting outside the port to deliver containers. These hundreds of containers have now been turned away.
CTA will be closed from Christmas Eve (Dec. 24th at 11:45 CET) until Monday, Dec. 28th at 06:00 CET.
The automated container terminals in Hamburg, Germany, operate best when they are at capacities of 80-85%, but with volumes exceeding 90+%, Johannes Bartels of ProTrans Global has shared that Hamburg’s terminals have been forced to take critical measures to control overcrowding in the face of delays to both import and export cargo.
In a normal year, Hamburg is used to congestion around both Easter and Christmas holidays. These are typically due to the cascading effects of blanked sailings from Asia following Lunar New Year and then around Christmastime, prior to a flood of holiday imports and exports.
This year, because of COVID-19 and extended closures in Asia and Europe, the normal flow of imports and exports loaded and empty containers was disrupted. As China remained closed, European manufacturers were still open and loading containers for export, filling up the terminals. By the time China reopened, Europe closed, and vessels were still not sailing or were sailing very late because there were still no exports from Asia to Europe. Meanwhile, without the usual flow of loaded containers into Europe, exporters quickly ran out of empty container inventory.
All of these conditions have persisted throughout 2020. They leave us in the situation we face today, where we have been told by two carriers that they presently have no empty high cube container inventory in Hamburg.
Hamburg operates three terminals: CTA, which services Hapag Lloyd and ONE, CTB, which services Maersk and MSC, and Eurogate. Container Terminal Altenwerder (CTA) was the first to announce restrictions to reduce the amount of export containers on the terminal.
The terminal previously had placed a restriction on requiring containers to be delivered only within 48 hours of vessel loading. As of December 23rd, the terminal is refusing to accept any export containers until further notice and will be closed for the holidays from approximately noon on Christmas Eve until 6:00 AM on Monday morning, December 28th
Because of the overcrowding, the terminal’s handling systems must make additional lifts to access containers for loading on vessels. We are also seeing vessels now leaving port without all of the necessary containers loaded because another vessel is in need of the berth, a practice called “cutting and running.”
TOC and ProTrans Global are working together with our customers to do everything possible through these challenges to secure empty containers, book space, and find solutions for these loaded containers in the near term. If you have any questions or want to learn more, please do not hesitate to ask your TOC account representative.
Changes in Administrations Bring Changes in Agency, Trade Priorities – November 30, 2020
With changes in administrations come changes in priorities. The incoming Biden/Harris administration will take office and have a number of trade issues on their hands to deal with from day one. The trade issues and relationships that are priority focus items within the first 100 days are the issues of COVID, vaccine distribution, adequate PPE supplies for frontline healthcare workers and economic relief for individuals and businesses. These are likely to consume the entirety of their focus at the outset.
Governing is about being able to walk and chew gum at the same time, so with that in mind, here are three issues they’re going to have to confront to plot a course forward.
China 301 duties
The additional Section 301 duties being paid on Chinese exports are due to an investigation and findings by the US Trade Representative. Section 301 refers to Section 301 of the Trade Act of 1974. A great explanation of this can be found on Wikipedia.
President Drumpf’s claims of who paid these duties aside, TOC saw the duties that our importer clients paid in increasingly larger amounts and the additional underwriting and collateral demands made by the companies holding their surety bonds. The original reasons behind the investigations—IPR theft and counterfeiting—remain with us today, especially as we read stories about nation states like China attempting to hack companies researching a COVID vaccine.
China’s complicated trading relationship with the world includes not just how they conduct business but the murky network of state-owned companies, antidumping and countervailing duty cases, treatment of Muslin Uighurs, and their increasingly iron-fisted grip on Hong Kong.
Reuters is reporting that the duties will likely stay in place at the beginning of a Biden administration to be used as a negotiating tool to bring China to the table on all the issues we mentioned above.
The people named to the posts of US Trade Representative and Ambassador to China will be critical.
The EU and the WTO
The World Trade Organization is where the US and China and the US and European Union have been sparring for the past four years. Most notably under the current administration are the retaliatory duties imposed by the US and EU upon one another in the issues of aircraft manufacturer subsidies—Boeing in the United States, Airbus in the European Union.
Contributing to the inability to bring closure was the conscious decision to hobble WTO’s appellate body, meaning decisions reached by the group stood without the opportunity for further adjudication. Here, the restoration of the WTO’s dispute mechanism will be key to remove duties on consumer and commercial products loved by citizens in both places.
RCEP and the missed opportunity of TPP
Over the weekend, fifteen countries—including China—ratified the Regional Comprehensive Economic Partnership at the annual ASEAN summit. The United States is not a signatory to this agreement, which covers 30% of the world’s GDP.
Quoting Wikipedia: “The trade pact, which includes a mix of high-income, middle-income, and low-income countries, was conceived at the 2011 ASEAN Summit in Bali, Indonesia, while its negotiations were formally launched during the 2012 ASEAN Summit in Cambodia. It will eliminate about 90% of the tariffs on imports between its signatories within 20 years of coming into force, and establish common rules for e-commerce, trade, and intellectual property.”
Flashback to four years ago when the two biggest decisions American voters and politicians were facing were their choice for President and whether or not the US should be in or out of the TPP. Americans chose a president, and the president chose to withdraw from the TPP.
The TPP, among other things, would have given the US an advantage to negotiate trade concessions from China. Instead of having the TPP as the vehicle, the administration instead wrung them out through punitive means at additional cost to American consumers and businesses, especially exporters.
Does TPP still have legs or life? As part of a wider focus on restoring American manufacturing through clean energy and a planned commitment by the government to buy domestically through its contracting process, new types of manufacturing will emerge, and the country will have a chance to export those products and services to a receptive global audience.
TOC Logistics monitors these changes for our customers
Among everything else we’ve seen this year was the implementation of the USMCA—proving that regardless of what is happening in the world, government, regulation and policy marches on. We will continue to watch the incoming administration and how they tackle domestic issues like hours of service for truckers, environmental mandates for commercial vehicles and dealing with expensive and time-consuming demurrage, detention and congestion issues in Southern California.
We strongly encourage our customers to follow us on social and watch for our frequent Market Advisories, where we tackle these important topics and provide guidance on how to prepare for the ever-changing supply chain landscape.
Global Congestion Concerns – November 12, 2020
The challenges of space, congestion and handling for shippers moving goods globally are real and multifaceted. Our goal is remaining engaged with our customers and ensuring they’re in possession of the most current information to make informed decisions for their supply chains.
Non-US Trade Lanes
Between Asia and Europe, Hapag Lloyd has announced their intention to blank additional sailings to north Europe the first week in December. This comes on top of announced increases to FAK rates that would see some of the highest rates in years in this trade.
We have a positive working relationship with the carriers we are utilizing, and they have been good partners in ensuring that space is protected for our clients. But as we have been reminding shippers throughout 2020, we have weekly allotments of containers whose bookings are accepted and space protected. Containers above and beyond these committed quantities that need to move are handled on a case-by-case basis that could require changing carriers, paying additional for space, or having to be booked for a future sailing or on a different service.
In the UK, major ports are forecasting congestion through December and shippers are being subjected to not just the insult of delayed discharges, but the injury of higher rates as well. It doesn’t help that concerns over Brexit and the ability for cargo to travel in-bond from European ports of arrival after January 1st are creating an artificial demand to get as much cargo directly in the UK before that date as possible.
As cargo arrives, however, there are increasingly fewer places for it to be stored. Large retailers are petitioning British customs authorities for permission to convert empty space to bonded warehousing in order to permit the duty-free importing and exporting of products as the uncertainty looms larger.
In the US, Southern California’s triple-whammy of challenges
In the United States, the most visible and concerning congestion has been happening in Southern California at the ports of Los Angeles and Long Beach. Both ports are reporting still-escalating volumes which are impacting fluidity on the terminals.
Several terminals use an appointment system to pick up and return containers. As volumes increase, the number of appointments has not increased, leading to more containers to be moved than slots available.
The use of Southern California as an entry point for much of the country’s consumer goods that have shifted from a traditional brick and mortar to e-Commerce fulfillment has congested local warehouses that are transloading containers
Those same e-Commerce volumes are driving huge domestic intermodal volumes eastbound—volumes so high that the UP has imposed punitive rates on small shippers to try to divert cargo from rail to truck.
Finally, the congestion at those warehouses has meant that the traditional turn time—the time it takes for a container and wheels to leave and be returned—has doubled from 3.5 to more than 7 days. Without a pool of wheels to remove containers from the pier, they remain in stacks.
We also want to mention that we are seeing and experiencing the same overbooked phenomenon on the westbound transatlantic trade lane, both for capacity as well as available containers.
What TOC is doing for our customers
We have a limited number of options at our disposal, but we are utilizing them all and encouraging our customers that based on what we’re hearing, the eastbound transpacific congestion issues will remain through Chinese New Year, 2021 (that’s mid-February for those counting down the days).
- Forecast and prioritize what needs to move. We know that many clients like to utilize the same carrier or alliance because of cut-offs, sailing dates and transit times. Given the lack of containers in Asia and the lack of space on vessels, we are protecting allocations four, five and six weeks in advance of cargo readiness.
- Determine if safety stock should move via expedited LCL or air. If rolling the dice on a delay in sailing could make or break a production line, TOC offers both expedited LCL service to several US ports and inland destinations. We also encourage clients to evaluate whether or not safety stock shipped by air makes sense. Now is the best time to do this, because even with demands on consumer electronics and holiday merchandise, vaccine distribution will change the landscape of availability and pricing in early 2021.
- Flexibility is the key to riding this out. We’re with you—the challenges 2020 brought forth accelerated moves to ensure we had the capability to be a fully remote workforce and to have all the necessary resources and knowledge available digitally that a walk across the room afforded us pre-COVID. We continue to listen and as we have adapted our processes, we know many of you have adapted your processes and supply chains, too.
The news is full of positive stories on the early success in vaccine trials. Realistically, we know that the time to produce, distribute, inoculate and monitor the long -erm efficacy of these vaccines means “2019” style operations won’t be back until later next year. We thank everyone for your patience, your understanding, your transparency and your willingness to adapt with us, together.
Worldwide container shortages – October 22, 2020
Global container shortages plague shippers worldwide as cargo surges into the U.S. from Asia. While we at TOC have been able to mitigate these issues and provide equipment in recent weeks, the problems aren’t short-term hiccups. Despite our strong carrier relationships, we expect the shortages to last until the end of November 2020 as carriers play catch up with cargo that was rolled due to blanked sailings and to make room for PPE shipments during the summer.
As retailers work to restock languishing shelves, massive shortages of equipment in Shanghai and Ningbo cause shippers to miss bookings because no boxes can be found for loading even if vessel space is available. This is not an issue specific to a single carrier or trade lane; instead, it ripples across the supply chain and impacts equipment scarcity in the United States. Massive congestion on the west coast causes delays as containers face a bottleneck getting out and back with turn times up 21% this month.
The problem extends to China as well, where we have been informed of the following key conditions which are further exacerbating the problem.
- Owing to the predominantly eastbound flow of cargo from China, carriers have opted for smaller, more frequent vessels. This means an increased number of calls by vessels carrying fewer containers, occupying and congesting valuable berthing space.
- The option to manufacture an additional supply of containers isn’t available to shippers seeking to put more equipment into the trade. According to a story in FreightWaves, container manufacturers are sold out through February of next year.
- These two factors, coupled with record trade deficits which show the increasing imbalance, are causing routine delays of 3-4 days with some running, on average, 7-10 days. Delays are now so commonplace that lines are unwilling to provide letters to this effect which could be passed along to shippers as evidence of the problems.
2020 seems to be the year of coining terms to describe what is happening in the market. With this in mind, some are positing that we’ve moved past “the perfect storm” to now “shipageddon.”
TOC has contracts with multiple carriers, the goal of which is to offer multiple service options to our clients including port pairs, sailing schedules and transit times. The messaging we are receiving from our three largest partner companies and groups is identical, which gives credibility and underscores that it is not anecdotal or a problem for one, but instead is a challenge for all.
We strongly encourage everyone to request equipment as far in advance as possible to give us enough time to try and procure it. Being flexible with sizes and configurations, loading times, or routings may help us find a solution that still suits your supply chain. We wrote recently about diversions and the ability to terminate or redirect a shipment in transit if it becomes critical. While not readily available and easy to accomplish for all shipments, shippers would be well served to have an understanding of the overall costs involved in this or even plan for shipments of air freight to fill potential stock or inventory vacancies for the most critical of items.
Market Advisory – Friday, September 18th filing deadline for importers of goods on Lists 3 and 4 to protect rights to potential full refunds of 301 duties.
A case brought before the Court of International Trade by a vinyl tile supplier has created an opportunity for importers to potentially recover all Section 301 duties paid on goods subject to lists 3 and 4.
The suit names the Office of the United States Trade Representative and Customs and Border Protection as defendants. The crux of the legal challenge is that Section 301 of the Tariff Act allows for action to be taken only in the 12 months following the finding by USTR and then, only for the reasons cited. In this case, it is the violation of intellectual property rights by Chinese exporters.
Subsequent lists—specifically lists 3 and 4 as cited in the suit—were imposed in response to retaliatory duties which were not part of the original 301 finding and, as such, should be invalidated and duties refunded.
As this requires the suit to be brought before the Court of International Trade, we encourage importers to immediately contact their Customs counsel to determine if filing a suit is in their best interest and to move quickly with the deadline just four short days away.
If your company does not have counsel of record, please contact Colin Ellis at TOC and he can provide you with a short list of recommended attorneys.
Update on Trucking Capacity – September 3, 2020
Trucking capacity is doing two things right now that every shipper should be aware of and planning for during the balance of 2020.
First, capacity is rapidly shrinking. As more and more consumers are homebound and businesses are either shuttering or operating with remote workforces, the need—and opportunity—for single truckloads moving from business to business has been replaced by smaller quantities delivering to more locations. Because of this, many traditional lanes of truckloads of single-shipper cargo are taken out of inventory and are replaced by truckloads of small packages being injected into local post offices and integrator facilities.
This decline in capacity means an increasing demand for a scarce number of trucks. This brings us to the second thing: getting loads covered and moved is increasing in price.
A just-published story in FreightWaves tells the tale succinctly and brings the facts and figures to back up what we’re seeing in the market.
With trucking prices at a 19-month high and capacity at a 22-month low, domestic trucking appears to be roaring back from the pandemic slump. Now the third such signal in a long line of industry markers that show recovery has begun. Intermodal rates and congestion, ocean equipment and box rates, and now trucking capacity and prices are all experiencing the low-supply/high-price swing as more people turn to e-commerce than ever before. Even warehousing space is quickly evaporating as brick and mortar stores see a pivot to online buying with homebound consumers and workers.
Confirming this is a report in the JOC (paywall, subscription required) identifying retailers working feverishly to rectify the stock-outs they experienced in the second quarter. To quote the article, “A number of retailers reported lower inventory levels during their latest quarterly earnings. Best Buy, Dick’s Sporting Goods, and Nordstrom, for example, noted inventory balances were 21 percent, 12 percent and 25 percent lower, respectively, than the year-ago period.”
The increase in imports through the Southern California gateway jumped 33.8% in July from the prior month whereas the total increase of US imports was only 0.9% month-on-month. This says that importers are looking at the fastest way to replenish, and via Southern California is quicker than all-water to the East Coast.
Initial pandemic forecasts warned us that transportation would drop and require capacity reductions, but this never came to fruition. Instead, without entertainment, travel, and social gatherings, people spent time shopping online and ordering direct from stores, requiring final-mile services that were at a premium due to PPE shipments taking precedence.
We’re thrilled to see signs of economic recovery despite the pricing pinch we feel. This traffic jam of cargo is far from self-regulating in the near term. Accurate planning, flexible and efficient routings, and clearly communicated changes and updates will be vital to managing the cost increases and finding space in choked lanes. TOC Logistics is standing by with options and ideas to work out alternative plans and patters to mitigate the expense and delays that come with such a tight market.
Update on TransPac Rates – August 24, 2020
Ocean container rates from Asia to the U.S. West Coast have more than doubled since March, topping $3500 in the spot market this week. Ocean rates have been on a meteoric rise because of a perfect storm of global factors centering around the COVID-19 pandemic. Equipment scarcity, blanked sailings, reinvigorated PPE shipments, and people stuck at home online shopping instead of going out for entertainment are outpacing the space available on ships. Even the charter market is on fire. Rates have been climbing by $1000 a day for the last two weeks.
Rates for the east coast are also up by one-third since March, with only ocean cargo from Europe to the east coast showing a decline of around 2%. The rate surge has provoked China’s Ministry of Transport to open an inquiry into the cause behind it. Cosco, Maersk, MSC, CMA CGM, Hapag Lloyd, and Evergreen are being questioned as to why the rates are climbing even though the blanked sailings have mostly been reintroduced and capacity isn’t an issue. It stands to reason the initial climb happened because blanked sailings reduced supply as people expected demand to drop with social distancing and quarantine protocols. That demand drop never really materialized in a significant way.
One initial issue that has extended through the pandemic is the trouble matching the equipment available to the locations in need. Because sailings were blanked, equipment couldn’t move out of ports to get to destinations, be emptied, and turned to carry new cargo. Equipment stacked up, chassis included, and caused significant disruption.
We also heard many early stories of massive PPE shipments traveling by air on cargo planes or in belly and passenger space on “phreighters.” At this point, shippers have more likely chosen to start moving these large shipments by ocean to save shipping costs because there’s less critical demand for urgent arrivals. The increase in PPE shipments and the online shopping spike are creating a transportation boom for ocean freight right now, which became problematic when capacity was reduced on an incorrect forecast.
If we look back at the news from late March, there was chatter about container contract rates showing their first pricing decline that prompted some to speculate a recession was on the horizon. That’s an important reminder to keep in mind right now. Spot rates might be astronomical, but contract rates, as the name implies, are contractually agreed to and locked in, general rate increases notwithstanding. Unfortunately, we’re now seeing that even those rates aren’t bulletproof in this situation. The movement in the market has been so steep that even contracted lanes are requiring hefty peak season surcharges and guaranteed service upgrades to ensure timely delivery.
Putting it plainly, this is a situation when almost everyone can do everything right and still be impacted by market forces and missed forecasts. TOC contracts rates to protect against pendulum swings of uncertainty. Our goal is to insulate our customers to the best of our ability against market fluctuations, but at this point, even the best-laid plans were incapable of protecting everyone from these adjustments.
But we’re not out of the fight yet. Through unparalleled ocean disruption, we’re still in your corner working with our carriers to secure the best value, schedule, and routing possible to guide you through this. Reach out to your TOC representative to discuss the ways we can assist you with your trans-Pacific ocean cargo.
Guaranteed ocean freight? Yes, but at a price – August 19, 2020
In an era of blanked sailings, congested ports and unreliable intermodal schedules, buyers are looking to TOC and our carriers for a way to provide day-definite confirmed stability to their supply chains.
The reliable movement of a container on schedule requires a combination of factors including:
- On-time vessel arrival and departure from the port of loading
- Not rolling the container
- On-time vessel arrival and availability or intermodal transfer upon arrival
- On-time departure by intermodal train (if selected)
- Unloading from train and made available for pickup, either wheeled or grounded, at the named inland rail depot
“On-time shipping” doesn’t seem difficult when seen through the prism of an overnight letter or small package moving through an integrator or an LTL or FTL shipment moving within the United States. Add foreign countries, thousands of miles of ocean to traverse and ports, terminals, longshoremen, rails and equipment availability and the likelihood narrows considerably.
With this in mind, a number of our carrier partners have introduced a guaranteed ocean freight service for full container-loads. What does this mean?
This means that we have the opportunity to work with a carrier who, for a premium, will prioritize equipment availability and release, protect and confirm space on board the vessel, establish the container as a priority for discharge and chassis availability and, if moving inland as part of an intermodal move, secure space on a daily intermodal train departure from the port of arrival.
If the container fails to meet the service level demanded when the cargo is booked, there is a money-back guarantee that refunds the additional premium.
If your first reaction is, “Sign my container up,” you aren’t alone. These priority services are often limited to a maximum number of containers per sailing and are also limited to both certain service strings, container sizes, origins and destinations, both port and inland.
According to reporting data from CargoSmart, carriers make these demands at a time when the vessels themselves are running at only 68.4% on-time, which is a nearly 10% increase from the first quarter of this year. Coupled with blank sailings and roll risks which aren’t even factored into that on-time performance figure and the real impact is even worse.
It’s a captive market. If a company’s supply chain involves sourcing from overseas, it’s unavoidable exposure. Even the best performing global carrier was on time only 71.6%. Planning a JIT inventory fine tuned to a few days with the largest leg reliant on such average performance will lead to unnecessary air expedite costs and unwanted heat from the C-suite.
If the data above bears anything out, it’s that we’re in agreement with our customers whose reaction to carriers demanding a premium at a time of already record-high rates on some trade lanes is largely negative.
It quantifies how they treat cargo generally. If there are shipments for which “general” isn’t good enough and on-time is the new normal or considered “expedited,” then speak with your TOC representative to determine if these guaranteed offerings are an option. If budgets cannot sustain the additional expense, we recommend building extra safety stock into inventory to account for these factors.
For LCL cargo, TOC already works with select carriers for our consolidation boxes. We have focused our efforts on ensuring close-outs at origin that maximize production schedules while prioritizing time in transit and port routings to get cargo to the deconsolidation point and to final destination as quickly as possible.
If LCL is what you need, don’t worry—your TOC representative can provide you with our consolidation schedules, too.
Standard, expedited or guaranteed, TOC offers ocean freight solutions for a wide variety of shipment needs.
Air freight waiting time and ground handlers – August 12, 2020
For freight forwarders and customs brokers like TOC, we work diligently in the current environment to move cargo as swiftly through supply chains as possible. What is in our control is the selection of carriers, whether ground, sea or air, based on their schedules, performance, transit time and overall reliability.
We also are reliant upon not just the asset-owners who operate the planes, boats and trucks, but the handlers of that cargo when goods cease their international journey and either arrive at their final destination or, in the case of ocean freight, arrive at a port and are transferred to a railroad for inland movement.
Air freight is particularly high visibility because of not just the usual premium on a per kilo basis it adds to the landed cost of an imported product, but increasingly so as rates are far higher because of demand for space for PPE inbound from Asia and the lack of aircraft operating on the transatlantic which would normally offer copious amounts of belly space and city pairings to choose from.
Instead, we rely on a patchwork of scheduled freighter operations, ad hoc charters operated by private entities and “phreighters” – passenger aircraft owned by US and European carriers which carry cargo not only below deck but which have either been converted to provide main deck space in the passenger compartment or being piled on seats and in overhead bins.
When these flights arrive in the United States, they are usually not handled by the airline because the airlines got out of the self-handling business a number of years ago and instead rely on third-party ground handlers. These handlers provide more flexibility in the workforce to scale up and down based on demand and by handling for multiple airlines can maximize the buildings and operations.
If there is one consistent factor with ground handlers it is sadly their inconsistency. While exports happen smoothly because of the demand of having cargo loaded and planeside to leave the country at a prescribed time, import cargo languishes in availability for a number of different reasons.
There have been a number of stories of late surrounding the poor performance of ground handlers and just last week it came to light that one of the nation’s largest third-party handlers received a letter from Congress asking them to explain why, despite receiving payroll loans and grants, they laid off or terminated in excess of 2,800 employees.
The layoffs are at the core of the congestion issue. When an inbound aircraft shows up laden with close to 100 tons of cargo, it takes a while to unload and make that cargo available. But TOC, on behalf of our customers, is paying the airline for the service of not just flying the cargo to the US, but also making it available within 8 – 12 hours after arrival.
Today, we face the situation where some handlers are delayed – and when they do finally make it available, we have very little time to recover before they start charging storage.
The handler’s customers are airlines. The airline’s customers are the actual shippers, whose interests TOC represents. Our teams are constantly working with both the handlers and our airline representatives to do their job of making cargo available. It creates a challenge for us because we cannot book trucks in advance since we cannot give them a time when cargo will be made available. Instead, we lose time awaiting availability before we can dispatch.
It is, theoretically, the equivalent of ordering a meal from a restaurant for takeout and waiting around for hours or days and having to persistently call them and ask when it will be ready. We don’t want to get a call that the dinner we ordered for Monday will be ready by breakfast Wednesday, but that’s where the industry is right now.
Until there is sufficient economic or market pressure that the overall ground handling product is improved, we will add the variable of “recovery time” in our quotations to clients. It does our reputation – and your supply chain – a disservice to be quoted a 2 – 4 day transit when it stretches into a 5th or 6th day for recovery.
Impacts and Challenges of USMCA – July 24, 2020
The USMCA has been implemented for twenty-four days, and it hasn’t been as difficult a crossover as many expected. However, it is early in the implementation process. How these changes in procedure will affect the long term remains to be seen. While there are many updates and changes, TOC has been paying close attention to the issues facing our clients during this roll-out time.
The biggest issue we have found is that customers are confused by the format and source of USMCA certification, since there is no single prescribed form for USMCA like there was for NAFTA. Instead, now there are 9 required data elements that can be presented in any format, including on the commercial invoice itself. Also, it is important to reiterate that TOC cannot issue USMCA certification. Legally, it must come from the supplier, exporter, or importer. In most cases, the importer will need to work with their supplier to get the certification. Description of the 9 data elements can be found on 5-A-1, sixteenth page.
While a lack of USMCA certification won’t delay cargo or keep it from being released, it may mean importers are subject to fees unnecessarily. If USMCA is not provided at the time of entry, the importer may file a Post-importation claim at a later date (up to 12 months later). However, unlike NAFTA, MPF will not be refunded on a post-importation USMCA claim. If you don’t have the certification upfront, you will lose the MPF.
Tips and tricks:
- Have the documents ready before a truck is even loaded. If you have a truck en route to the border and you don’t know who has the USMCA certification, it’s probably already too late.
- Do your research! Don’t assume your products qualify for USMCA just because they qualified for NAFTA, especially if you are certifying they qualify. There are a lot of small but crucial changes in the origin rules. We can help customers determine eligibility, but again, this should be done as early as possible, not when the truck is at the border.
- Enforce record-keeping. Anyone certifying the USCMA may be subject to CBP Audit for origin verification. Thus the certifier should have all the necessary backup documents (such as certifications from other suppliers) in case of an audit.
- Get familiar with USMCA resources, such as:
- USMCA agreement
- CBP Webpage
- USMCA implementation Instructions
- General Note 11 of the U.S. HTSUS
- Federal Register
Now more than ever, with the increase in complexity to the certification process introduced by the USMCA, it is imperative to ensure that all your documentation is in order, ruthlessly scrutinized for any outstanding errors, and completed as quickly as workflows allow. Mistakes can be costly in the long run when you least need them to appear. If you need assistance developing a process to determine your product’s eligibility, contact your TOC representative today.
Blanked sailings in Q3 to pose space challenges from key Asian destinations – June 10, 2020
The announcement by carriers working to strategically match estimated volumes with scheduled sailings was stark—an estimated 75 blanked sailings are planned so far for the third quarter.
A “blanked sailing” refers to a planned hole in a carrier’s service string.
Steamship lines operate in alliances where they each contribute vessels to operate a fixed day-of-the-week sailing that calls ports in a service called a “string.”
By blanking the sailings, carriers do two things. First, they eliminate a service option, meaning that a preferred carrier, routing and transit time that an importer or exporter relies on needs to be substituted for another. Second, by removing capacity, they directly impact the available supply and indirectly hope to align the available capacity with what they hope are the rates that the market will pay.
Steamship lines and their networks and routings are often a lot like airlines serving smaller, regional airports. Sometimes there may only be a flight or two a day and the choices are limited. In some cases, maybe the only flights are to and from a larger hub to connect.
TOC, on behalf of our shippers, sometimes faces the same challenge when it comes to selecting a carrier because maybe only one carrier or alliance has the service that is required. Depending upon the demands of the cargo, we have to evaluate which carriers offer the shortest transit time, few or no transshipments and the frequency of sailings in the event one is missed because of a roll or blanked sailing.
The fewer the competitors—and the fewer the sailings—the more carriers feel the pricing power rests with them and not shippers. This puts everyone at a disadvantage when trying to negotiate.
Mike Klage, our Solutions Director, has highlighted several key origin points in Asia that are of concern.
“The Chinese ports of Shanghai, Ningbo and Yantian are going to be heavily affected, as well as the Korean port of Busan and German port of Bremerhaven. This is why as a Non-Vessel Owning Common Carrier (NVOCC), we have chosen to contract with multiple carriers and alliances.”
“What increases the challenges for us and for shippers is when blanked sailings are not confined to a single alliance but are made across all carriers and alliances. This reduces the available supply equally, not leaving additional capacity with one or another group of carriers.”
The decline in available frequencies is apparent in the statistics reported by ports themselves. Los Angeles reported a decline of 6.45% from April 2019 to April 2020, and saw 28 fewer calls to the port from vessels. Long Beach reported a 17.3% decline year-on-year from April 2019 and the entire San Pedro port complex saw 61 cancelled sailings in the first quarter and another 48 are expected through the end of this month.
To mitigate the impacts of these blanked sailings, TOC continues to take proactive steps with our customers and carriers, and we ask for your help in this endeavor.
- Much like there are multiple routes to a destination by road, so too are we presenting multiple options to our clients. Certainly for port-to-port moves we are limited, but many inland destinations can be serviced via alternate routings through the Pacific Northwest or Canadian West Coast.
- Share your forecasting at the earliest possible opportunity for us to protect space within our weekly allocated volumes with our carrier partners.
- When and where, identify cargo that must be prioritized. If the regularly scheduled carrier, sailing or allocation are not available, offer alternative solution—one of which could be space on a higher-priced carrier operating on the same trade lane to ensure movement.
2020 continues to a year in which we are working with the data we have collected and with forecasting that is fluid to make the best possible choices and recommendations for our customers. Your TOC team stands ready to remain advocates for your supply chain.